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Even Regulators Worry Compliance Is Hurting Small BDs

July 31, 2017

Compliance costs may have to be tweaked for smaller broker-dealers, top regulators recently said at a recent conference, according to ThinkAdvisor.

The number of broker-dealers has fallen from 4,600 five years ago to 4,000 today, Peter Driscoll, head of the SEC’s Office of Compliance Inspections and Examinations, said at a joint SEC and Finra compliance event last week, according to the publication.

Finra CEO Robert Cook said the falling numbers may be due in part to industry consolidation, ThinkAdvisor writes. Nonetheless, even while the number of registered reps is up, smaller firms and advisors at those firms moving to larger broker-dealers “might have to do with the cost of compliance,” he said, according to the publication.

Cook said regulators need to review the regulatory burden shouldered by smaller firms and determine whether some “differentiation” in regulations can help smaller firms while ensuring investor protection, ThinkAdvisor writes.

SEC commissioner Michael Piwowar, meanwhile, said the shrinking numbers could be in part due to “natural movement” of broker-dealers toward the investment advice model, ThinkAdvisor writes. But he added that the higher fixed costs of compliance associated with following the Department of Labor’s fiduciary rule have also contributed to the decline, according to the publication. Cook, too, suggested reviewing ways “to make the regulations more efficient” for smaller broker-dealers without compromising investor protection, ThinkAdvisor writes.

Robert Cook (Getty)

The DOL’s fiduciary rule, which purports to force retirement account advisors to put clients’ interests first, went into partial effect in June. The agency is reviewing the rule ahead of its full implementation date currently set for January, and it also faces the threat of repeal from several measures from GOP lawmakers and legal challenges in the courts, as reported previously.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.